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A fallacy that is perpetuated among business commentators and readily believed by chief executive of cers of many organizations is that customer relationship management (CRM), requiring large sophisticated databases of customer information, is the panacea for establishing customer loyalty Without an emphasis on technology or software, CRM aligns business processes with customer strategies to build customer loyalty and increase pro ts over time Customer relationship management is not a software tool that manages customer relationships but is rather the bundling of customer strategies and processes, supported by relevant software, for the purpose of improving customer loyalty and eventually pro ts in the organization Effective customer relationship management is based on segmentation analysis and an appropriate customer strategy for each segment According to Rigby et al (2002, p 109) successful CRM depends more on strategy than on the amount spent on technology The only way you can make CRM work is by taking the time to calculate your customer strategy, which helps employees understand where they are going and why, and to align your business processes before implementing technology These authors provide a framework to ensure an appropriate alignment of CRM strategy with technology Five steps lead to the successful retention of customers (Figure 23) First, it is necessary to acquire the right customer, which depends on selecting an appropriate strategy supported by suitable technology During the next stage the organization develops the right value proposition after which it establishes the best processes It is then necessary to involve employees in the task of retaining customers Customer relationship management, loyalty programmes, relationship marketing, life-time customer value are, therefore, fashionable terms used by commentators and managers who ignore the importance of the sale the transaction as the primary purpose of multiple communications with customers A focus on the transaction provides immediate feed-back on the effectiveness of marketing activities It also serves to prequalify customers
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[28] Strategic Marketing
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Imperative
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Acquiring the right customer
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identify most valuable customers determine their importance to you
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analysis of customer revenue and costs identify current and future high-value customers target direct marketing collect relevant product behaviour data create new distribution channels develop new pricing models build communities of customers process transactions faster provide better information to the front office efficient management of logistics and supply chain install effective collaboration align incentives and performance measures use knowledge management systems track customer defection and retention levels track customer satisfaction levels
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Designing the right value proposition
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select products required now and in the future identify competing products determine products to offer
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Establish the best processes
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determine the best way to deliver the products role for alliances and technologies service capabilities to develop or acquire understand tools employees need to foster customer relationships establish human resource systems to increase employee loyalty understand why customers defect and how to re-acquire them understand what competitors do to win organization s high-value customers service managers study customer defection measures
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Motivate employees
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Source: adapted from Darrell K, Rigby, Frederick F Reichheld and Phil Schefter (2002), Avoid the four perils of CRM , Harvard Business Review, February, p106 Reprinted by permission of Harvard Business Review Copyright 2002 by the Harvard Business School Publishing Corporation; all rights reserved
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Figure [23] Customer relationship management strategy and technology
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and measure their potential value before the organization invests in building a relationship with them Relationship marketing aims to create a customer relationship from the start of the sales cycle and satisfy and retain existing customers whereas the goal of transactional marketing is to make the sale and locate new customers Advocates of relationship marketing or customer relationship management believe that the approach delivers accurate data to the organization to assist in making decisions but in fact these data are un ltered because they are not calibrated against any benchmarks or standards There is, however, a clear relationship between the transactional activities of an organization and resulting revenues Observing customer behaviour rather than basing decisions on attitudes seems the better option Transactional marketing techniques should be used as a precursor to relationship building efforts as retaining customers ultimately is more pro table than searching for new ones In this regard the ability of transactional marketing to prequalify customers is the approach favoured
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